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How Can Benefitfocus Handle Competition?

Posted on Monday, Mar 26th 2018

According to IBISWorld, the market for HR benefits administration in the United States was expected to grow 1% to $54 billion in 2017. Benefitfocus is a provider of cloud-based benefits software solutions that recently reported its fourth quarter results that were in line with estimates.

Benefitfocus’ Financials

Benefitfocus reported fourth quarter revenue grew 7% to $66.8 million, surpassing analyst estimates of $66.4 million. Non-GAAP net loss per share was ($0.06) in line with analyst estimates. GAAP net loss was ($7) million, compared to ($7.1) million a year ago.

By segment, revenue from Software services grew 5% to $55.1 million, Professional services grew 15% to $11.7 million, Employer grew 21% to $44.4 million, and Insurance carrier declined 14% to $22.4 million.

Cash, cash equivalents and marketable securities at December 31, 2017 totaled $55.3 million, compared to $54.6 million at the end of the third quarter of 2017.

For the full year 2017, total revenue grew 10% to $256.7 million. GAAP net loss was ($25.9) million, compared to ($40.1) million in 2016.

Software services revenue was $218.4 million, an increase of 8% compared to the full year 2016. Professional services revenue grew 21% to $38.3 million, Employer revenue was up 17% to $164 million, and Insurance carrier revenue was flat at $92.7 million.

For the first quarter, Benefitfocus expects total revenue to be in the range of $57.5 million to $59.5 million and non-GAAP net loss to be in the range of ($13) million to ($11) million or ($0.42-$0.35).

For the full year 2018, the company expects total revenue to be in the range of $250 million to $258 million and non-GAAP net loss to be in the range of ($25) million to ($17) million or ($0.79)-(0.54).

Benefitfocus’ Customers and Competition

Benefitfocus ended the year with 920 large employer customers, up from 833 a year ago. Its employer customers include SAP America, American Eagle Outfitters, Amerigas Propane, Brookdale Senior Living, California Institute of Technology, Carolinas HealthCare System, Fiesta Restaurant Group, Hard Rock Café International (USA), and Rush University Medical Center.

Benefitfocus also has strategic partnerships with SAP SE and Mercer to sell its software solutions.

Its carrier customers include Wellmark, American Family Life Assurance Company of Columbus, BlueChoice HealthPlan of South Carolina, Blue Cross of Idaho Health Service, and Blue Cross and Blue Shield of Kansas City and South Carolina.

Competition in its employer segment comes from ERP software companies such as Oracle (PeopleSoft), Infor (Lawson), and Workday; HR outsourcing companies such as Towers Watson; payroll service providers such as ADP; and niche software vendors like Gusto, Namely, and Zenefits.

Recent Developments at Benefitfocus

Benefitfocus recently launched a new offering called BenefitsPlace that unites brokers, employers, carriers, and suppliers on a single platform. It offers consumers a wide-range of benefits products for personal wellbeing and security at any stage in life.

Charleston, South Carolina-based Benefitfocus was founded in 2000 by Mason Holland, Jr., American Pensions founder and Shawn Jenkins. After 17 years as the CEO, Shawn Jenkins has decided to retire. Ray August, who was the COO has been promoted as the new CEO.

Questions for the Board

While the SaaS market as well as the benefits software management industry is highly competitive. It is a hotbed of unprecedented opportunities. There is scope to look within and outside to identify the growth levers and leverage opportunities. How will Benefitfocus leverage these opportunities?

There are a number of small startups in the space for acquisitions and acquihire. For example,

EaseCentral is an employee benefits system designed by brokers, for brokers with revenue of about $4 million and venture funding of $8.6 million. TailorWell is a benfits management startup focusing on small businesses and has revenue of less than $1 million. GoCo is a platform for managing HR and benefits that has raised $4.3 million in funding.

Its stock is trading at $26.7 with a market capitalization of $836.5 million. It touched a 52-week high of $37.1 in July last year and a 52-week low of $21.75 last month.

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